The Reserve Bank of Australia has left the cash rate unchanged at 1.5 per cent, with the central bank board continuing to worry about weak wages growth.

The RBA board's decision, announced following its April board meeting on Tuesday, means Australia's official interest rate has been at a record low for 20 months, newswire service AAP reports.

"One continuing source of uncertainty is the outlook for household consumption, although consumption growth picked up in late 2017. Household income has been growing slowly and debt levels are high," says RBA governor Philip Lowe, in a statement accompanying the announcement.

The RBA notes the Australian economy grew by 2.4 per cent over 2017, and tips faster growth in 2018 amid "positive business conditions" and increasing non-mining business investment.

However, it expects the ongoing period of low wage growth "is likely to continue for a while yet".

"Consistent with this, the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills," according to the RBA statement.

This translates into ongoing weakness in household consumption amid slow growth in incomes, accompanied by high levels of household debt.

"The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual."

The RBA board believes maintaining its current monetary policy is "consistent with sustainable growth in the economy and achieving the inflation target over time".

Morningstar expected rate hold

This outcome is consistent with the view of Morningstar's head of equities research, Peter Warnes, who last week wrote that "an increase in official interest rates appears unlikely in 2018".

"Wages and salaries are the lifeblood of household income and the lack of real growth remains a key concern.

"The highly leveraged household sector battles strong and widespread inflationary pressure across necessity expenses," Warnes says.

He expects growth in Australia's household income will remain "below trend and negative in real terms for some time, and this is likely to dictate the actions of the RBA," though suggests "out of cycle rate increases cannot be ruled out."

Industry views

According to Aberdeen Standard Investments' senior investment manager, Jasmin Argyrou: "The RBA…are probably pleased with the level and stability of housing credit growth.

"A hike in the cash rate may seem like a remote possibility, but we think the unemployment rate will soon drop under the weight of strong employment growth, and the higher inflation this foreshadows will see the RBA eventually shift to a tightening bias."

AMP Capital chief economist Shane Oliver also indicated last week that the RBA was “likely to leave rates on hold for the 20th month in a row”, surpassing the previous record of 19 months without change between January 1995 and July 1996.

“High business confidence, strong jobs growth and the RBA's own growth and inflation forecasts argue against a rate cut, but risks around consumer spending, weak wages growth and inflation, the slowing Sydney and Melbourne property markets and the still too high Australian dollar argue against a rate hike,” he said.

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Glenn Freeman is a senior editor at Morningstar.

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